Question
Blackmun Corp signed a 3 year noncancelable lease for certain machinery on Dec 31, 2018. The...
Blackmun Corp signed a 3 year noncancelable lease for certain
machinery on Dec 31, 2018. The terms of the lease called for
Blackmun Corp to make equal annual payments of $15600 at the end of
each year for 3 years, withtitle to pass to Blackmun Corp at the
end of this period. The first payment is made one year after the
lease is signed on Dec 31, 2018. The machinery has an estimated
useful life of 3 years and no salvage value. Blackmun Corp uses the
straight-line method of depreciation for all of its fixed assets.
The effective interest rate for the lease was 6.6%.
Income Statement For: 2019
◊―――――――――――――――――――――――――――――◊
Operating Income: 119,232
Earnings from affiliates: 0
Earnings Beore Interest and Taxes: 119,232
Interest expense: 4,950
Earnings before Taxes: 114,282
Provision for Taxes on Income: 31,999
Net income: 82,283
◊―――――――――――――――――――――――――――――◊
The company had initially accounted for the lease as an operating
lease and the figures above were produced using that assumption.
Later the company decided to account for the lease as a capital
lease. With the lease accounted for as a capital lease, the Times
Interest Earned Ratio for 2019 is:
| Periods: Present value at 6.6% |
| 1: 0.9381 | | 2: 0.88 | | 3: 0.8255 | | 4: 0.7744 | | 5: 0.7265
|
| 6: 0.6815 | | 7: 0.6393 | | 8: 0.5997 |
| Periods: Present value Annuity at 6.6% |
| 1: 0.9381 | | 2: 1.8181 | | 3: 2.6436 | | 4: 3.418 | | 5: 4.1445
|
| 6: 4.826 | | 7: 5.4653 | | 8: 6.065 |
A. 119232/7672
B. 119232/2722
C. 119232/4950
D. 132979 / 7672
E. 132979 / 2722
F. 132979 / 4950
G. 121085 / 7672
H. 121085 / 2722
I. 121085 / 4950
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